Manual of HND Business Decision Making - Final_0

HND Business- Unit Manual- Unit 16- Business Decision Making

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Copy right Nelson College London

Author Hillary

Editor Nazim Uddin

Version V1-August 2013

UNIT MANUAL (STUDY GUIDE)

UNIT 6: BUSINESS DECISION MAKING

HND BUSINESS

NELSON COLLEGE LONDON


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TABLE OF CONTENT

Table of content ...................................................................................................................................................... 2

1.1: Create a plan for the collection of primary and secondary data for a given business problem ...................... 3

1.2: Present the survey methodology and sampling frame used ............................................................................ 8

1.3: Design a questionnaire for a given business problem ................................................................................... 16

2.1: Create information for decision making by summarising data using representative values ......................... 23

2.2: Analyse the results to draw valid conclusions in a business context ............................................................. 24

2.3: Analyse data using measures of dispersion to inform a given business scenario .......................................... 27

2.4: Explain how quartiles, percentiles and the correlation coefficient used to draw useful conclusions in a

business context .................................................................................................................................................... 36

3.1: Produce graphs using spreadsheets and draw valid conclusions based on the information derived ........... 41

3.2: Create trend lines in spreadsheets graphs to assist in forecasting for specified business information ........ 44

3.3: Prepare business presentation using suitable software and techniques to disseminate information

effectively .............................................................................................................................................................. 47

3.4: Produce a formal business report .................................................................................................................. 53

4.1: Use appropriate information processing tools .............................................................................................. 56

4.2: Prepare a project plan for an activity and determine the critical path .......................................................... 62

4.3: Use financial tool for decision making ........................................................................................................... 69

References ............................................................................................................................................................. 78


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1.1: CREATE A PLAN FOR THE COLLECTION OF PRIMARY AND SECONDARY DATA FOR A

GIVEN BUSINESS PROBLEM

BUSINESS CHALLENGES FACED BY TESCO IN AMERICA

Data may be described as facts, figures, information and measurements (BPP, 2013). The author argues that

data may be used in a statistical survey in either primary or secondary data. This method is only necessary

when a researcher cannot find the data needed in secondary sources or when data extracted from the

secondary sources are not reliable or correct. In this task, a business problem of Tesco superstore is established

to assist in planning for the collection of primary and secondary data.

Extract from Tesco fall in profit in the US market (www.tesco.com)

Tesco profits fall as supermarket pulls out of United States

Tesco’s annual profits have fallen for the first time in almost 20 years, as the UKs biggest supermarket

confirmed it was pulling out of the US. Tesco is exiting the US chain of 199 fresh and Easy shops, which have

never made a profit at a cost of £1.2bn.

There was also a huge write down in the value of Tesco’s UK property portfolio. The company’s statutory pre-

tax profits fell 51% to £1.96bn, but post-tax including the cost of the US exit were just ££12bn down 95.7%.

However, Tesco argued that sales at UK stores in the past three months, excluding fuel and VAT sales tax, rose

0.5% a slowdown from growth of 1.8% in the six weeks to January 5th

when the company hailed strong

Christmas trading.

The world third largest supermarket group which reported a stock profit warning in January last year has been

restructuring under chief executive Philip Clarke. As well as the US withdrawal, Tesco is exiting Japan and said it

would take a more measured approach to our growth in China. Mr. Clarke said “the announcements made

today are natural consequences of the strategic changes we first began over a year ago and which include

today. With profound and rapid change in the way consumers live their lives, our objectives is to be the best

multichannel retailer for customers.

A £804m write down in the UK property portfolio comes after a review in which Tesco identified more than 100

sites bought mainly during the property boom more than five years ago which the company no longer plan to

develop. Tesco is shifting its focus away from out of town stores. And many of the properties will not be

needed. Mr. Clarke said, “the large stores we have are great, but we won’t need many more of them because

growth in future will be multichannel (a combination of big stores, local convenience stores and online).

http://www.tesco.com/


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For the year, total UK sales rose 1.8% to just over £48bn, with UK trading profit falling by 8.3% to £2.27bn.

Tesco said its online grocery division has had another strong year with sales growing ahead of the market by

12.8% to £2.3bn.

Mr. Clarke told BBC that Tesco’s profits had been hit because of the amount of money the company is investing

to improving its operations. Tesco had hired thousands of staff in the UK and revamped stores. He said we feel

Tesco in the UK can be better for customers. That is what they want and that is what we are beginning to

deliver. He said that the US exit plans were well advanced with interest from potential buyers for all or parts of

the business. It would take about three months before the sales process was concluded. Mr. Clarke said.

Ajah Bhalla, professor of global innovation management at Cass Business School, said that the root of Tesco’s

US problems was a failure to understand that the US retail landscape is different from the UK. The drive to

become even-bigger, while offering lower prices, had worked for years, but made it difficult for Tesco to

change course when needed he said. The falling star of Tesco in the US is a harsh reminder that scale is not the

recipe for sustainable value creation. For years Tesco managers paid attention to perfecting the mix of supplier

driven cost deficiencies with low prices.

While Tesco paid attention to making its US venture work, the UK retail market evolved quickly. Customer’s

service and quality gained the upper hand over low pricing and Waitrose and Sainsbury’s emerged as the

preferable destination for the growing middle class segment. Tesco’s exit from the US is a reminder for

managers of the dangers of going blindly for scale and cost leaders, the wheels of which are difficult to reverse

if you need to change course to becoming a retailer known for first class customer experience Professor Bhalla

said.

PROBLEM FACED BY TESCO IN AMERICA

Tesco US problem was summarized by professor Bhalla that Tesco failed to understand US landscape.

Moreover, in creating a plan to collect primary and secondary data as a measure of tackling the problem, the

schedule design above provides a clear approach. For the primary data collection Tesco may involve in

interview that include ( face to face and telephone interview)

SOURCES OF PRIMARY AND SECONDARY DATA COLLECTION METHODS

Table 1: Primary Secondary Data collection Plan

Tasks Sources Steps to Accomplish Schedule


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Primary Data Collection

Define objective of

research question

Interview Face to face, by the use

of telephone or online

interview

The time must meet a

schedule deadline

Observation Physical presence

(Participant observation)

to record the observation

of the phenomenon, the

researcher has to observe

what is happening to

record observation.

Same above

Focus group The researcher brings

people together to focus

on a particular issue. The

optimal number in a

focus group is eight and

the lower number is six.

This discussion is audio

recorded

Same above

scales Use of Likert scales. This

used in attitude research

to gather quantitative

data

Same above

Questionnaires By post, email or

electronic online as well

as pilot test.

Same above

Secondary Data

Collection.

Define objective of

research question

Previous research Library research, and

online data search

Same above

Internet Electronic sites. For

example, ESTA, Emerald

etc

Same above

Books/magazines Read extensively related Same above


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literatures and magazines

Case studies Undergo an in-depth

examination of a number

of cases

Same above

Source: Author (2013)

MAKING A PLAN FOR THE COLLECTION OF PRIMARY AND SECONDARY DATA TO ADDRESS

TESCO'S PROBLEM IN AMERICA

Focus group may also be organized by bringing people together to discuss the problem (for example fall in sales

in the US market) see focus group above

Likert scale questionnaire may also be used as a primary survey of collecting data on the issue of fall in sales by

Tesco in the US market.

For secondary data collection, Tesco may explore previous literature on successful supermarket operations in

the US in the last three to five years.

Learners may use the approach and get a case of business problem and use the plan above to fit in the data

collection process.

SOURCES OF PRIMARY AND SECONDARY DATA COLLECTION METHODS

Table 1: Primary Secondary Data collection Plan

Tasks Sources Steps to Accomplish Schedule

Primary Data Collection

Define objective of

research question

Interview Face to face interview of

a sample of customers,

employees, and interview

of connsumer behaviour

experts

The time must meet a

schedule deadline

Observation Obersavation in

competitors stores (e.g.-

Same above


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Walmart)

Focus group The researcher brings

people (customers,

employees, and interview

of connsumer behaviour)

together to focus on a

particular issue.

Same above

Questionnaires An structurerd

questionnaire to (general

people, potential

customers in the local

area, existing customers).

To be sent via post,

email, online, face to

face.

Same above

Secondary Data

Collection.

Define objective of

research question

Research paper Read dissertation/

coursework/ research

paper on consumber

behaviour and US culture.

Same above

Case studies Case study of Walmart

and other overseas stores

who set up a base in the

US.

Same above


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1.2: PRESENT THE SURVEY METHODOLOGY AND SAMPLING FRAME USED

The survey methodology tends to be quantitative research project and the data collection method used in this

research is questionnaire or scales (Quinlan, 2011). According to Pinsonneault and Kraemer (1993) survey is a

means of collecting information about a characteristics, actions, or opinions of a large group of people. This

research methodology is used to answer questions that have been raised to solve problems, to determine

whether specific objectives have been met and to establish baselines against which future comparisms can be

made (Glasow, 2005).

A sampling frame is a set of information used to identify a sample population for statistical treatment. A

sampling frame includes a numerical identifier for each individual, plus other identifying information

about characteristics of the individuals, to aid in analysis and allow for division into further frames for more in-

depth analysis.

CHARACTERISTICS OF SURVEY RESEARCH

Three characteristics faced survey research, and this include, to quantitatively describe specific aspects of a

given population, the data required for survey research are collected from people and are therefore subjective,

and finally, survey research uses a selected portion of the population from which the findings may be

generalized back to the population (Kraemer, 1991).

VARIABLES OF THE SURVEY RESEARCH

Independent and dependent variables are identified form the concept of the survey research (Glasow, 2005)

and the researcher have to design a model to identify the expected relationships among these variables.

Glasow argues that the survey is constructed to test the model against observations of the concept.

SURVEY PROCESS

Levy and Lemeshow (1999) in Glasow (2005) suggest that survey design involves two steps. A sampling plan has

to be developed, because the sampling plan is the methodology that will be used to select the sample from the

population. Glasow (2005) posit that the sampling plan helps to describe the approach that will be used to

select the sample, how adequate sample size will be determined, and the choice of media through which the

survey will be administered. Moreover, these survey media include telephone, face to face interviews as well

as mailed surveys using either postal or electronic mail (Salant and Dillman, 1994 in Glasow, 2005).

http://www.businessdictionary.com/definition/information.html

http://www.businessdictionary.com/definition/sample.html

http://www.businessdictionary.com/definition/population.html

http://www.businessdictionary.com/definition/plus.html

http://www.businessdictionary.com/definition/characteristic.html

http://www.businessdictionary.com/definition/individual.html

http://www.businessdictionary.com/definition/analysis.html

http://www.businessdictionary.com/definition/division.html

http://www.businessdictionary.com/definition/frame.html


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Secondly, the procedures for collecting population estimates from the sample data and for estimating the

reliability of those population estimates must be established (Glasow, 2005). This process includes

identification of the desired response rate and the preferred level of accuracy for the survey (Salant & Dillman,

1994 in Glasow, 2005).

According to Glasow (2005), survey design procedures need inputs from the people that will use the survey

data as well as the researchers that will conduct the survey investigation. Further, the author argues that the

data users should identify the variables to be measured, the estimates required, the reliability and validity

needed to ensure the usefulness of the estimates, and any resource limitations that may exist pertaining to the

conduct of the survey (Levy & Lemeshow, 1999 in Glasow, 2005).

KEY ELEMENTS OF SURVEY DESIGN

Sampling Frame: This is the source material which a sample is drawn. This frame is a list of items within a

population that can be sampled (Quinlan, 2010).

Kinds of sampling: There are two kinds of sampling (Quinlan, 2010). They are probability and non probability

sampling (Blumberg, 2011). Quinlan (2010) argue that the probability sampling is when the sample selected

from the population is a representative of the entire population. This is because the researcher using the

probability sampling wants to claim that the findings of the research carried out with the sample are

generalizable to the entire population of the study. Probability sampling includes simple random sampling,

stratified sampling, systematic sampling and cluster sampling (Quinlan, 2010; Blumberg, 2011).

Simple Random sampling: This sample involves selecting a sample at random from a sample frame. For

example, Quinlan (2010) posit that the examination of a class population of 30 students as the sample frame

begins with the collating of all the names of the students in the class, and tear each name and place in a bag or

box and then select one name at a time from the box. This process is called a simple random sampling.

Systematic sampling: This sampling technique involves the idea of selecting items at regular intervals from the

sample frame (Quinlan, 2010). For example, Quinlan argues that suppose a person working in a housing estate

trying to establish a brand of washing powder to use in each house. The sampling frame is made up of all the

houses in the housing estate. Given that there are 500 houses in the estate and first random sample and then

every third house or every fifth house or whatever interval until the sample is complete. The completed sample

is the number of houses included in the study known as systematic sampling.

Stratified sampling: This sampling tool is chosen based on some known characteristics of the population that

will have impact on the research (Quinlan, 2010). According to Quinlan, using stratified sampling, the


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researcher divides or stratifies the sample selected using characteristics that he/she knows will have an impact

on the study.

Cluster sampling: This sampling is when the people or unit that make up the population of the study are found

in groups or clusters. In this process, sampling is conducted by randomly selecting a sample of the clusters to

study rather than randomly selecting from the population to study. This is efficient especially geographically

spread population (Quinlan, 2010).

Non probability sampling is when the sample is selected to represent the population, but cannot be a

representative of a population because this sampling is on the capacity of a relatively small number of cases

(Quinlan, 2010). The non probability sampling could be judgmental sampling, quota sampling, snowball

sampling, and convenience sampling.

Judgmental/Purposive sampling: In this sampling, the researcher makes judgment or decides about who to

include in the research (Quinlan, 2010). Quinlan posits that the criterion for inclusion in the study is the

capacity of the participants to inform the study. Each person or unit chosen to be included has a contribution

to make to the study. Further, people chosen to be included in the sample would be key informants on the

topic under investigation.

Quota sampling: In this tool, the researcher a sample of participants for the study using different quota

criteria. For example, Mary needed 100 participants in her survey. The population of the study was a

population of students and staff from the college. She decided that there will be four quotas. The first quota

was made up of 25 female students, the second quota was made up of 25 male students, the third quota was

made up of 25 female members of staff, and the fourth was made up of 25 male members of staff. In the

process, Mary used quota sampling technique (Quinlan, 2010).

Convenience sampling: In this case, the researcher engages those participants in the research whom it is

easiest to include. For example, Quinlan (2010) suggest that people in the newsagents, people in the

supermarket etc. In this case, the researcher knows the number of people included in the sample then

continues to engage people on the research until the sample is filled.

Snowball sampling: In this non probability sampling technique, the researcher finds one participants in the

research, investigates the research with the participants, and then ask the participants ton recommend the

next participant (Quinlan, 2010). Participant must fit the inclusion criteria for the research study. The

researcher goes through the procedure with the second participant and when finished, asks the participants to

recommend another participant to be included in the research. The researcher continues in this manner until

the sample is complete (Quinlan, 2010).


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Sample selection: This depends on the population size, its homogeneity, the sample media and its costs of use,

and the degree of precision required (Salant and Dillman, 1994 in Glasow, 2005). In addition, Salant and

Dillman suggests that the people selected to participate in the sample must be selected at random, they must

equal or independent chance of being selected. Further, the prerequisite to sample selection is to define the

target population as narrowly as possible (Salant & Dillman, 1994).

Sample size: Sample size is determine by five factors which include desired degree of precision, statistical

power required, ability of the researcher to gain access to the study subjects, degree to which the population

can be stratified, and selection of the relevant units of analysis (Glasow, 2005)

Degree of precision: Postulated effect exists in the sample. For example, Glasow (2005) posit that the effect

exist in the alternative hypothesis. The null hypothesis claims that this effect does not exist. According to Slant

and Dillman (1994), the sample must be large to yield a desired level of precision. Two measures of precision

are considered. The significance level is the amount of type 1 error that the researcher will allow in the study.

This type 1 error occurs when the null hypothesis is rejected when it is in fact true. The second measure is the

confidence interval. The researcher has to create a confidence interval for example 95 percent confident that

the corresponding statistic for the population falls within the specified range of the sample statistic.

Statistical Power: The probability that the researcher rejects the null hypothesis given that the alternative

hypothesis is true (Attewell & Rule, 1991 in Glasow, 2005) the author argues that where the null hypothesis is

erroneously accepted and the alternate hypothesis is true, a type 11 error is said to exist.

Effect size as a determinant of Power: This helps to evaluate the overall importance of the result.

Choice of survey media: This is to determine the availability of resources (Salant and Dillman, 1994). For

example, Salant and Dillman, suggest that written surveys require minimum resources (staff, time and cost)

and are best suited to eliciting confidential information. Written survey encourages minimal interviewer and

respondent measurement errors. Written survey is distributed via postal or electronic mail, as well as hand

delivery.

Verbal survey: This includes telephone, face to face interviews. The face to face interview is a particularly

flexible tool that can capture verbal inflexion, gestures and other body language (Glasow, 2005). However, the

face to face are used where the true population is not known or when respondents are unable or unlikely to

respond to written surveys (Salant & Dillman, 1994). Verbal surveys are subject to measurement error when

untrained interviewers are used (Slant and Dillman, 1994 in Glasow, 2005). This method is also resource

intensive in terms of staff, facilities and time. Findings from face to face interviews are difficult to summarise

and incorporate in data analyses (Isaac & Michael, 1997 in Glasow, 2005).


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SURVEY INSTRUMENT DEVELOPMENT

This must be preceded by certain prerequisites. First the survey must be carefully defined; secondly, the study

objectives must be translated into measureable factors that contribute to that focus. Third, the researcher

must make sure that he or she understand the topic, and finally, the survey must be consistently administered

(Salant & Dillman, 1994; Fowler, 1995 in Glasow, 2005)

Standard for Good Questions: Good questions provide answers to reliable and valid measures.

Question wording: The question and any response options must be clear to both respondent and the

researcher (Salant & Dillman, 1994; Fowler, 1995).

Feasible and ethical: Good survey question must be feasible to answer and respondent must be willing to

answer them (Fowler, 1995 in Glasow, 2005). Questions must be civil and ethical, and the researcher must

avoid questions that ask the respondent for data they could not or do not have, including questions that

assume that the respondent know something about the subject (Salant & Dillman, 19934).

Additional consideration: The researcher should avoid questions that involve double negatives and long

questions that lose the respondents in the reading (Glasow, 2005). Glasow suggests that undefined

abbreviations, acronyms, and jargon should not be used. In a similar study, Salant and Dillman (1994)

maintained that the tone of the survey questions should avoid biased wording that evokes an emotional

response. Rating scale should be balanced to provide an equal number of positive and negative response

options (Salant & Dillman, 1994).

Biased Wording: Questions that include predisposition of either for or against a particular perspective (Salant

and Dillman, 1994). These questions may be leading or include assumptions that may not be true.

Biased context: The placement of questions in a particular order so that the respondent is already thinking

along certain lines on the basis of previous questions (Browne & Keeley, 1998 in Glasow, 2005).

TYPES OF SURVEY QUESTIONS

Open ended: This allows the respondents to answer questions in their own words. Open ended questions also

allow the researcher to explore ideas that would not otherwise be aired and are useful where additional

insights are sought (Salant and Dillman, 1994). These questions are also helpful where the researcher is less

familiar with the subject area and cannot offer specific response options. Further, salant and Dillman note that

open ended questions provide greater thought and contemplation on the part of the respondent therefore

create more time to answer (Glasow, 2005). The results from open ended questions are often more difficult to

analyze.


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Close ended: This requires the respondent to choose from among a given set of responses (Mclntyre,

1999).These types of questions are easiest for respondents answer and the researcher to analyse the data.

Survey Execution

The third phase of the survey methodology is execution. According to Salant & Dillman, (1994), the importance

of maintaining the confidentiality of individual responses, and reporting survey is only in the aggregate values.

Another ethical consideration is recognizing that survey participation is a voluntary event that requires the

researcher to encourage participation without undue pressure (Salant & Dillman, 1994 in Glasow, 2005).

Levy and Lemeshow (1999) argue that pre-test must first be carried out to test both the instrument and the

survey procedures before the actual survey. Surveys may be evaluated in two ways. First, survey questions van

be evaluated using focus group discussions, cognitive interviews to determine how well respondents

understand the questions and how they formulate their responses, and pilot tests of survey under field

conditions (Fowler, 1995). Second, response to surveys can be analyzed to reveal expected relationships among

the answers given, and to ensure consistency of respondent characteristics across questions.

Data Analysis and Reporting Survey Results

Data analysis and effective presentation of results are important elements of a credible and successful survey.

Isaac and Michael (1997) averred the use of automated data collection tools to facilitate data tabulation and

manipulation. Lucas (1991) suggests that use of nonparametric statistics where small sample sizes are involved.

Note: Using the Tesco fall in sales in the US market, the survey methodology discussed above may be explored

to fit into Tesco survey approach in order to collect reliable data.

Tesco need a sampling plan to be developed to select the sample from the population. Also adequate sample

size will be determined, and the choice of media through which the survey will be administered such as

telephone, face to face interviews as well as mailed surveys using either postal or electronic mail.

FURTHER GUIDANCE ON SAMPLING FRAME

Sampling Frame is a physical representation of the target population

- It consists of sample units that are potential members of the sample

- Extent (size) of the frame is obtained by summation

- Sample Frames almost always are not exact representations of the target

population

o Sample Frame may not include some Target Population elements:

Undercoverage


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o Sample Frame may contain non-target elements, e.g., mis-identified

sample units: Overcoverage

A subset of the Sample Frame sample units are selected for sampling: the sample

- Probability survey designs used to select the subset

- One design: Generalized Random Tessellation Stratified Designs - GRTS

- May include stratification, unequal probability selection, panels for surveys

over time

Sample Frame overcoverage and sample site field access problems addressed by

including an Oversample.

Sampled Population is a conceptual population that is a subset of intersection the Target

Population and the Sample Frame

It excludes portion of the Target Population within the Sample Frame that could not be

sampled (conceptually) due to access problems, lost samples, or other reasons a sample

could not be collected

It doesn't include part of the Sample Frame that is determined to not be elements of the

Target Population

SUMMARY OF THE SURVEY METHODOLOGY TESCO MAY USE

A sampling Frame to indicate source material which a sample is to be drawn. The number of items within a

population that can be sampled See sample frame above

A simple random sampling that will involve selecting a sample at random from a sample frame see discussion

on random sampling above

A Judgmental/Purposive sampling may be considered to make: judgment or decides about who to include in

the research. See discussion on purposive sampling above

Tesco may also consider the survey media in terms of the resources (staff, cost)

Tesco may consider the closed and open ended format of questions in the questionnaire.

In execution of the survey, Tesco may consider that the exercise should be voluntary

Target Population Sample size Sampling method

Existing clients 1% Stratified Random sampling (select store, and then

randomly select any customers)


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Potential customers 50 customers who shop

at other competitors

Stratified Random sampling (select store, and then

randomly select any customers)

Experts 5 top experts One academic, one retail analyst, one public relation

expert, one marketing, one former CEO of competitors)

Employees 12 2 from the Board of Directors

5 from senior/middle managers

5 from shop floor managers and shop floor assistants.


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1.3: DESIGN A QUESTIONNAIRE FOR A GIVEN BUSINESS PROBLEM

When a study engages a large population, it is not possible to engage every member of the population. Quinlan

(2011) posit that when a large population is involved the researcher must design a research instrument that

facilitates a wide approach to studying the phenomenon using a large number of respondents. Questionnaire

and or scales are appropriate data collection instruments in such research. These instruments are structured to

ensure that each respondents is asked the same simple, clear and precise questions and to make sure that the

responses made to the questions/issues are also simple, clear and precise (Quinlan, 2011).

In designing a questionnaire, two main objectives are considered. To maximize the proportion of subject,

answer questions, and to collect accurate information Quinlan observed that to maximize the response rate,

the researcher need to administer the questionnaire, establish rapport, explain the purpose of the survey, and

remind those that have not responded. In addition, the length of the questionnaire have to be accurate and in

order to collect accurate relevant information, the researcher need to give some thought top what questions to

ask, how to ask them, the order at which they are ask, and the general layout of the questionnaire (Quinlan,

2011). Similarly, Blumberg et al (2011) provided four questions covering the designing a questionnaire. This

includes should the questions be asked? Is the question of proper scope and coverage? Can the respondents

adequately answer this questions as asked? Will the respondents willingly answer the questions as asked?

Deciding what to ask: There are three potential information: Information the researcher is interested in

(dependent variables), information that might explain the dependent variables (independent variables), and

other factors related to both dependent and independent variables which may distort the results and have to

be adjusted (confounding variables).

Wording of individual questions: the way questions are phrased are very significant in research project, there

are some general rules for constructing good questions in a questionnaire.

A: Use short and simple sentences: Short, simple sentences are less confusing and ambiguous than long,

complex ones. As a rule of thumb, most sentences should be one or two clauses. Sentences with more than

three clauses should be rephrased.

B: Ask for only one piece of information at a time: Only ask for one piece of information at a time

C: Avoid negatives if possible: Negatives should be used only sparingly. For example, instead of asking

students whether they agree with the statement “small group teaching should be cancelled” the questions

should be rephrased as “small group teaching should continue” double negatives should be avoided.


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D: Ask precise questions: Questions may be ambiguous because a word may have different meaning. For

example, if students are asked to rate their interest in “medicine” this term might mean general medicine as

opposed to general surgery.

E: Ensure that the respondents have necessary knowledge: The researcher must make sure that the

respondents should have some knowledge to the topic. For example, the survey of university lecturers on

recent changes in higher education, the questions “Do you agree with the recommendations in the Dearing

report on higher education?” Not only does the researcher ask for several pieces of information at the same

time as there are several recommendations in the report. The question also assumes that all lecturers know

about the relevant recommendations.

F: Level of details: It is very important for the researcher to ask for the exact level of details required. It is good

to avoid unnecessary details.

G: Sensitive issues: It is often difficult to collect truthful answers to sensitive questions. For example, have you

ever copied other students’ answers in a degree exam? Is likely to provide either no responses or negative

responses.

Format for responses: The responses may be open or closed format. In an open ended question, the

respondents may formulate their own answers. In closed format, respondents are forced to choose between

several given options. Quinlan (2011) and Blumberg et al. (2011) argues that it is good to make use of the two

formats.

Length of questionnaire: There are no universal agreements about the optimal length of questionnaires. It may

depend on the type of respondents. Blumberg et al (2011) suggest that short simple questionnaires usually

attract higher response rates than long complex ones.

Arranging the questions: Quinlan (2011) posit that the orders of the questions are important. According to

Quinlan, some general rules include: from general to particular, from easy to difficult, from factual to abstract,

start with closed format questions, start with questions relevant to the main subject and do not start with

demographic and personal questions.

Introduction, personalized letter and ending: It seems a good idea to have either a personalized covering

letter or at least an introduction explaining briefly the purpose of the study, the importance of the

respondents’ participation, who is responsible for the study and a statement guaranteeing confidentiality i t is

also good to thank the respondent at the end of the questionnaire.

How to administer the questionnaires: Blumberg et al. (2011) and Quinlan (2011) argue that there are several

ways of administering questionnaires. Self administered or read out by interviewers. The authors suggest that


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self administered questionnaires may be sent out by post, email or electronic online. Interview administered

questionnaires may be by telephone or face to face.

Advantages of self administered questionnaires

Cheap and easy to administer

Preserve confidentiality

Can be completed at respondents convenience Advantages of interview administered questionnaire

Allow participation by illiterate people

Allow clarification of ambiguity

Piloting and evaluation of questionnaires: Given the complexity of designing a questionnaire, it is impossible

to get it right the first time. Therefore questionnaires must be piloted on a small sample of people (Quinlan,

2011)

Questionnaires and scales are precise data collection instruments. They are designed to attract short precise

responses. For example, the extract below from a sample questionnaire and Learners should know that the

questionnaire has been designed to allow for simple responses.

(Likely example of Tesco Questionnaire)

Please answer as many questions as applicable ticking the relevant boxes. All answers will treated as

anonymous.

Questions Answers

Yes/No

Do you approve or disapprove of the recent fall in Tesco profit in the US market?

Approve

Disapprove

Do you agree to the recent exit of Tesco superstore in the US market?

As there been any organizational audit before launching into the US market?

Do you agree with Tesco strategic decision to exit the US market?


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What factors are important to your business success? (Please tick Yes or No)

A: Tesco possess good Managerial skills

B: Have Organizational culture & reputation

C: Seek new market opportunities and act to meet the emerging demand

D: Focus on our line of business, rather than spread our efforts on several different lines of

business

E Take calculated risk

f: Encourage employee skill development to improve on the business

G; Need to introduce new leadership approach

In your opinion, what are the main constraints on the growth of Tesco business?

(Please tick Yes or No)

A: High rent and rates

B: Inadequate information on America landscape

C: Insufficient demand for product

D: Inadequate information on markets

E: Lack of marketing for our products or services

G: Heavy competition

H: Difficulties in achieving quality standards from American customers

I: Management difficulties

J: US strong regulation on foreign businesses

K: Tax burden

R: Other (please specify) ………………………………………………………………………………

Do the exit strategy the best option for Tesco in the America market (Please tick Yes or No)

If No, should Mr. Clarke be removed from his job

Do you agree that competing in America market with the right strategy will boost sales?

If Yes, how will this help British growth……………………………………………………………………………………..

Do you have the professionals handling key positions like marketing, accounting/finance in your

organization? (Please tick Yes or No)


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If exit strategy was the last option, what was the motivation behind it?

Shareholder pressure

Chief Executive Decision.

Competitive pressure

Concern for other risk

Any suggestions on what you think can be done to improve the sales figure of Tesco in America if

they are remain?...........................................................................................................................

…………………………………………………………………………………………………………………………………………………..

…………………………………………………………………………………………………………………………………………………..

For how long has Tesco been in operation especially in America (Please tick as appropriate)

Less than five (5) years

Between 5 and 10 years



Over 20 years

How often does Tesco hold management meeting? (Please circle as appropriate)

None at all, occasionally, weekly, irregular on situation demand

Has Tesco ever held a management retreat or strategy session? (Please tick Yes or No)

Do you agree that Tesco have to engage more on the best strategic planning techniques that

would drive upward their sales? (Please tick Yes or No) If Yes, what strategic planning technique is

preferable considering the market and competition


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Author (2013)

Thank you very much for your time and help

Please return completed questionnaires in the stamped addressed envelope provided

EXAMPLE QUESTIONNAIRE 2- DIFFERENT TYPES OF CLOSED ENDED QUESTIONS

Closed-ended questions

Name: Dichotomous

Description: Question offering two choices

Example: Did you watch television at all yesterday?

Yes / No

Name: Multiple

Description: Question offering three or more choices

Example: Which of these shops do you prefer?

Next / River Island / Gap Top Shop/ Top Man

Name: Likert scale

Description: Statement with which respondent shows the amount of agreement / disagreement

Example: Assessment by course-work is easier than assessment by examination

Strongly agree Agree Neither agree nor

disagree Disagree Strongly disagree

Name: Semantic differential

Description: Scale is inscribed between two bipolar words and respondent selects the point that most represents the

direction and intensity of his / her feelings


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Example: The degree I am taking is.............

Interesting :_____:_____:_____:_____:_____:_____:_____: Boring

Useful :_____:_____:_____:_____:_____:_____:_____: Useless

Easy :_____:_____:_____:_____:_____:_____:_____: Difficult

Name: Rank order

Description: Respondent is asked to rate or rank each option that applies. This allows the researcher to obtain information

on relative preferences, importance etc. Long lists should be avoided (respondents generally find it difficult to rank more

than 5 items)

Example: Please indicate, in rank order, your preferred chocolate bar, putting 1 next to your favourite through to 5 for your

least favourite.

Double Decker

Crunchie

Wispa

Mars Bar

Creme Egg

Name: Numeric

Description: Respondent specifies a particular value (can include decimal places)

Example: How far (to the nearest kilometre) did you travel today to reach this supermarket?

________km


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2.1: CREATE INFORMATION FOR DECISION MAKING BY SUMMARISING DATA USING

REPRESENTATIVE VALUES

The use of information to improve organization decision making has received considerable attention from

academics and consultants attempting to provide insights into how information can better be used. According

to ittner and Larker (2006) in Kennerley and Mason (2008) the growing evidence is that greater use of effective

analytical tools deliver better financial performance. Also Devenport and Harris (2007) in Kennerley and Mason

(2008) suggest that the tradition basis of competitive edge have disappeared as such leading businesses are

competing on analytics by using sophisticated qualitative and statistical analysis using information technology

to improve the use of information available to managers.

The point of departure for this task is to understand raw data and how it can presented in a tabular format and

the guidelines to understand tabulation. Raw data are list of results from a survey (BPP, 2013). These data

needs to be summarized and analyzed in order to provide meaning. However, tabulation simply means putting

the data into tables (BPP, 2013). The table is shown in two dimensions (rows and columns).

Guidelines for tabulation

The table be given a clear title

All columns be clearly labeled

Where appropriate there should be clear sub-totals

The right hand side should carry the total columns

The total figure is advisable at the bottom of each column figures

Tables not be packed with so much data

Eliminate non essential information, rounding large numbers to two or three significant figures

Do not hide important figures in the middle of the table

Illustration

This illustration shows the cost of production at factory A and Factory B of a business organization using

representative values to represent the production of the factories.

Factory A Factory B

Components 000 % 000 %

Direct materials 70 35 50 20

Direct labor 30 15 125 50

Production overhead 90 45 50 20

Office cost 10 5 25 10

Total 200 100 250 100

Source: BPP (2013). Adapted by Author 92013)


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2.2: ANALYSE THE RESULTS TO DRAW VALID CONCLUSIONS IN A BUSINESS CONTEXT

The cost of production illustration above in task 2.1, the cost of the factories is shown in pie chart. In order to

convert the components into degree of a circle, BPP (2013) argue that the percentage figures or actual cost

figures are significant.

Use of percentage figures

In exploring the percentage figures, the total percentage is 100%, and the total number of degrees in a circle is

360. Therefore to convert to each degree, the author divides each detail with the total and multiplies with the

pie chart degree of 360. See example for factory A

Direct materials 70/200 = 0.35

0.35 multiply by 360 = 126

Direct labor 30/200 = 0.15

0.15 multiply by 360 = 54

Production overhead 90/200 = 0.45

0.45 multiply by 360 = 162

Other costs 10/200 = 0.05


Example for factory B

Direct materials 50/250 = 0.2


Direct labor 125/250 = 0.5


Production overhead 50/250 = 0.2


Other costs 25/250 = 0.1


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Factory A Factory B

Components % Degree % Degree


Direct labor 15 54 50 180


Other costs 5 18 10 36

100 360 100 360

Source: BPP (2013) Adapted by Author (2013).

Using the actual cost figures

Formula = number of degree Total Costs Factory A 360/200 = 1.8 Factory B 360/250 = 1.44

Factory A Factory B

Components % Degree % Degree


Direct labour 15 54 50 180



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Other costs 5 18 10 36

100 360 100 360

Source: BPP (2013) Adapted by Author (2013).


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2.3: ANALYSE DATA USING MEASURES OF DISPERSION TO INFORM A GIVEN BUSINESS

SCENARIO

Raw data are unprocessed information that needs to be processed to provide a meaning to organizations.

According to BPP (2013), raw data are list of results from a survey carried out. The survey results need to be

summarized and analyzed in order to provide a meaning.

Illustration

Nelson College gave a text on marketing principles to a class of forty students. After marking the papers, the

college presented the following scores

3 10 2 29 10 45 20 28 35 20

10 22 2 23 30 45 40 39 24 19

25 24 33 37 18 17 42 41 45 27

23 26 25 25 27 32 21 23 29 34

Source: Author (2013).

Find the mean, median, mode, variance and standard deviation of the results of the student scores using a class

size of 6

Draw a simple bar chart to represent the student scores

Illustration 2: The financial position of Edward Internet Café for the last seven years shows the income and

expenditure up to 2007 accounting year

Details Year 1 Year 2 Year 3 Year4 Year 5 Year6 Year 7

Cash income 1,200 1,500 1,600 1,400 1,350 1,200 1,100

Cash expanses 1,000 1,100 1,125 1,050 1,000 1,050 1,250


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Cash

surplus/Deficit

200 400 475 350 350 150 -150

Source; Author (2013)

Draw graphs to show the movement of income and expenses for the years

Mean: The statistical distribution with a discrete random variable is described as the mathematical average of

all the items (BPP, 2010; 2013). According to the author, to calculate the mean, add up all the values of all the

items and then divide by the number of the items. This is called the arithmetic mean. The simple formula to

calculate the mean is EX/N

Simple illustration: use these numbers to find the mean (2, 5, 3, 6, 4, 3,)

X = EX/N

Where X = Mean E = Summation X = Variables N = Number of variables Therefore X = 2+5+3+6+4+3

6

X = 23/6 = 3.8 or 4

Using the raw data above

X = EFX EF

Where X = mean

E = Summation F= frequency X = Variables

Classes F (frequency) X (Mid Point) FX

2 - 7 3 4.5 13.5

8 - 13 3 10.5 31.5

14 - 19 3 16.5 49.5

20 - 25 12 22.5 270

26 - 31 7 28.5 199.5

32 - 37 5 34.5 172.5

38 - 43 4 40.5 162


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44 - 49 3 46.5 139.5

40 1038


X = EFX 1038 EF 40 25.95 or 26 Using the coding approach X = A + Efu Ef C

Classes F (Frequency) X (Mid Point) U (Coding) FU

2 - 7 3 4.5 -3 -9

8 - 13 3 10.5 -2 -6

14 - 19 3 16.5 -1 -3

20 - 25 12 22.5 0 0

26 - 31 7 28.5 1 7

32 - 37 5 34.5 2 10

38 - 43 4 40.5 3 12

44 - 49 3 46.5 4 12

40 23



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X = A + E fu C Ef

X = 22.5 + 23 6 40

X = 22.5 + 0.575 6

X = 22.5 + 0.575 * 6 = X 22.5 + 3.45 X = 25.95 or 26

Median: the medium of a distribution with a discrete random variable depends on whether the number of

terms in the distribution is even or odd. BPP (2013) argue that when the number of terms is odd, then the

median is the value of the term in the middle.

Using the group data of the student scores

Median = L1 + N/2 - E f1 C

Fm

Where L1 is lower class boundary of the median class

N/2 is the number of frequency divided by 2

Ef1 is the cumulative frequency before the median class

Fm is the frequency of the median class

C is the class size


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Classes F (frequency) Cf (Cumulative frequency)

2 - 7 3 3

8 - 13 3 6

14 - 19 3 9

20 - 25 12 21

26 - 31 7 28

32 - 37 5 33

38 - 43 4 7

44 - 49 3 40

40


Median = 20 + 40/2 – 9 6 12

Median = 20 + 20 - 9 6 12 Median = 20 + 11 6 12


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Median = 20 + 0.92 * 6

Median = 20 + 5.52

Median = 25.52 or 26

Mode: The mode of a distribution with a discrete random variable is the value of the term that occurs the most

often (BPP, 2013

Using the group data of the students scores

Mode = L1 + D C D1 + D2

Where L1 is the lower class boundary of the modal class

D is the frequency of the modal class

D1 is the frequency before the modal class

D2 is the frequency after the modal class

C is the class size

Classes F (frequency)

2 - 7 3

8 - 13 3

14 - 19 3

20 - 25 12


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26 - 31 7

32 - 37 5

38 - 43 4

44 - 49 3

40


Mode = 20 + 12 6 3 + 7

Mode = 20 + 12 6 10

Mode = 20 + 1.2 6

Mode = 20 + 1.2 * 6

Mode = 20 + 7.2

Mode = 27.2


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Standard deviation and variance

The variance And standard deviation are related indicators of the spread of data within a population or sample.

According to BPP (2013) the population variance and standard are the deviation among individual

measurements from the population mean for the entire population.

SD = C E fu2 - E fu 2 N N

Where C is the class size

E is summation

F is frequency

U is the coding

N is the number of frequency

Using the group data of the students scores

Classes F (Frequency) X (Mid Point) U (Coding) FU FU2

2 - 7 3 4.5 -3 -9 27

8 - 13 3 10.5 -2 -6 12

14 - 19 3 16.5 -1 -3 3

20 - 25 12 22.5 0 0 0

26 - 31 7 28.5 1 7 7

32 - 37 5 34.5 2 10 20

38 - 43 4 40.5 3 12 36

44 - 49 3 46.5 4 12 48


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40 23 153


SD = 6 153 - 23 2 40 40

SD = 6 153 - 0.575 2 40

SD = 6 3.825 - 0.575 * 2

SD = 6 3.825 - 1.15

SD = 6 2.675

SD = 6 * 1.636

SD = 9.82

Variance: This is the square of the standard deviation

Variance = 9.82 2

Variance = 96.4


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2.4: EXPLAIN HOW QUARTILES, PERCENTILES AND THE CORRELATION COEFFICIENT

USED TO DRAW USEFUL CONCLUSIONS IN A BUSINESS CONTEXT

Correlation

Correlation measures how strong the connection is between for two variables. BPP (2010) argue that when

correlation is strong, the estimated line of best fit should be more reliable. In contrast, if correlation is weak,

the line of best fit is calculated by linear regression might be insufficiently reliable.

Correlation coefficient is also called product moment correlation coefficient is defined as

R = nExy - Ex Ey

nEx2 - Ex 2 n E y2 - Ey 2

where n is the number of variables

E is the summation

X is unit of variables

Y is unit of variables

Illustration

Eden college unit of goods and the unit cost incurred are as follows

Unit of Produced Total costs

1 40

2 45

3 50

4 65

5 70


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6 70

7 80

Source: BPP (2013) Adapted by author (2013)

Find the correlation Coefficient

Let x represent the unit of goods produced

Let y represent the total cost

X (unit of goods) Y (total cost) xy X2 Y2

1 40 40 1 1600

2 45 90 4 2025

3 50 150 9 2500

4 65 260 16 4225

5 70 350 25 4900

6 70 420 36 4900

7 80 560 49 6400

28 420 1870 140 26550

Source: BPP (2013). Adapted by Author (2013)

R = 7 1870 - 28 * 420

7 140 28 2 7 26550 - 420 2


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R = 7 * 1870 - 28 * 420

7 * 140 - 28 * 28 7 * 26550 – 420 * 420

R = 13090 - 11760

980 - 784 185850 - 176400

R = 1330

196 * 9450

R = 1330

185220

R = 1330

1360.9

R = 0.97

Interpretation of coefficient of correlation (note- conclusion reached using correlation)

Having calculated the value of r, it is important to interpret the result. The r of 0.97 indicates a high a degree of

positive correlation between the unit of goods produced and the total costs. BPP (2013) argue that in general,

the closer that r is to +1 or -1 the higher of degree of correlation.

Coefficient determination

The coefficient of determination is the square of the correlation coefficient. It is denoted as r2

R2 = 0.97 2 = 0.94

Percentile

Percentile can be captured by stating that the pth percentile of a distribution is a number such that

approximately p percent (p%) of the values in the distribution are equal to or less than that number. So if 28 is

the 80th

percentile of a larger batch of numbers, 80th

of those numbers are less than or equal to 28.


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A percentile can be calculated as (a) calculated directly for values that actually exist in the distribution (b)

interpolated for values that do not exist (but which the learner may want to use to plot specific graph)o

calculate percentiles, sort the data so that xi is the smallest value, and xn is the largest with n = total number of

observation.

xi is the pth percentile of the data set where

pi = 100 1 – 0.5 n Illustration 1 (Original data)

5 1 9 3 14 9 7

(Sorted data)

Xi 1 3 5 7 9 9 14

I 1 2 3 4 5 6 7

Pi: Calculate, using equation (I) as shown below

P1 = 100(1-0.5) / 7 = 7.1

P2 = 100(2-0.5) /7 = 21.4

P3 = 100(3-0.5) /7 = 35.7

P4 = 100(4-0.5) /7 = 50

P5 = 100(5-0.5) /7 = 64.3

P6 = 100(6-0.5) /7 = 78.6

P7 = 100(7-0.5) /7 = 92.9

Filling in the final row

Xi 1 3 5 7 9 9 14

I 1 2 3 4 5 6 7

pi 7.1 21.4 35.7 50.0 64.3 78.6 92.9


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To take a single example, 7 is the 50th

percentile of the distribution, and about half of the values in the

distribution are equal to or less than 7.

Quartile

Quartiles are the values that divide a list of numbers into quarters. They are often used in sales and survey data

to divide population into groups. For example, quartiles may be used to find the top 25 percent of incomes in a

population. For example let’s have 5, 8, 4, 4, 6, 3, 8

First put the numbers in order and cut the list into four equal parts. The quartiles are the cuts.

For example: Numbers in good order as 3, 4, 4, 5, 6, 8, 8

Cut the numbers into quarters

3, 4, 4, 5, 6, 8, 8. The first 4 after 3 is lower quartile, the 5 is the middle quartile and the 8 before the last 8 is

the upper quartile. (Qi 4, Q2 5 and Q3, 8)

Quartile (array, quart)

Array: Array or cell range of numeric values for which you want the quartile value

Quart: Indicate which value to return

if Quart Equals Quartiles Returns

0 Minimum Value

1 First quartile (25th

percentile)

2 Median value (50th

percentile)

3 Third quartile (75th

percentile)

4 Maximum value


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3.1: PRODUCE GRAPHS USING SPREADSHEETS AND DRAW VALID CONCLUSIONS BASED

ON THE INFORMATION DERIVED

Data is represented through graphs which are pictorial representation of the data (BPP, 2013). According to

BPP, the graphs commonly used are the bar charts, pie chart, histogram, frequency polygon, as well as line

graphs. The general rule to keep in mind in drawing graph include be simple and not too clustered, show data

without showing the data message, clearly show any trend or differences in the data and be accurate in a visual

sense


The bar chart above explains the frequencies of the scores of students in the marketing principle text. The

students that scores between 20 to 25 had the highest bar, while students that scores 7 to 19 had the least

scores in the marketing principle text.

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Cash income 1200 1500 1600 1400 1350 1200 1100

Cash expenses 1000 1100 1125 1050 1000 1050 1250

Cash surplus/(deficit) 200 400 475 350 350 150 -150

LINE CHART

0

2

4

6

8

10

12

14

02-Jul Aug-13 14 - 19

20 - 25

26 - 31

32 - 37

38 - 43

44 - 49

F (frequency)

F (frequency)


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Source; Author (2013)

EXPLANATION OF THE TRENDS- CASH INCOME

The above chart indicates that there are three data sets The blue line indicates cash income and this is plotted

against the years to indicate whether the income is going up or down. The trend shows us that the cash income

has gone up in the first three years and then it started falling from the fourth year onwards and it has

recovered since that period.

The above chart although shows a trend, but it does not outline the reasons for the decline. We do not have

any data regarding income from banks therefore with certainity we cannot make any assumption whether the

drop in cash income was compensated by the bank income.

CONCLUSION REACHED- CASH INCOME:

If the trend continues, the orgaisation will have very little cash income, whereas teh cash expenses are

continuously increasing. This might force the organisation to borrow cash to meet the higher cash expenses

need. This would required from year 7 onwards, unless the organisation received a healthy cash balance from

the previous years.

-400

-200

0

200

400

600

800

1000

1200

1400

1600

1800


Cash income

Cash expenses

Cash surplus/(deficity)


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-400

-200

0

200

400

600

800

1000

1200

1400

1600

1800


Cash income

Cash expenses

Cash surplus/(deficity)


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3.2: CREATE TREND LINES IN SPREADSHEETS GRAPHS TO ASSIST IN FORECASTING FOR

SPECIFIED BUSINESS INFORMATION

The trend is the original long term movement over time in the values of the data that has been recorded (BPP,

2013). For example, BPP provided example of time series with three types of trend

Years Output/labour hour

unit

Cost per unit

£

Number of employees

2004 30 1.00 100

2005 24 1.08 103

2006 26 1.20 96

2007 22 1.15 102

2008 21 1.18 103

2009 17 1.25 98

(A) (B) (C)

Source: BPP (2013) Adapted by Author (2013)

A: in the time series A, there is a downward trend in the output per labor hour. This is because the output per

labor did not fall every year. As such it went up between 2005 and 2006. However, the long term movement of

the trend is downward one (BPP, 2013).

B: According to BPP (2013), the time series shows upward trend in the cost per unit. But unit cost went down in

2007 from a higher level in 2006. The basic movement over time is one of the rising costs.

C: For this part, the time series displays no clear movement up or down, and the number of labor remained

fairly constant around 100. Therefore the trend is static or level one.


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Finding the trend

A: Inspection: The trend line can be drawn by eye on a graph in such a way that it appears to lie evenly

between the recorded points that are a line of best fit if it is drawn by eye. It should be drawn to pass through

the middle of the recorded points thereby having several data points.

B: Regression analysis by the least squares method: The regression analysis by the least square may be drawn

to fit the trend lines

C: Moving Averages: This method attempts to remove seasonal or synclinal variations by a process of

averaging.

Illustration

Years Sales Units

2000 390

2001 380

2002 460

2003 450

2004 470

2005 440

2006 500


Show moving averages of the annual sales over a period of three years

A: Average sales in three year period 2000 – 2002

390 + 380 + 460 = 1,230 3 3 410


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The average relates to the middle year of the period 2001. See the moving averages of the whole data below

Year Sales Moving total of 3 year

sales

Moving average of 3 year

sales

2000 390

2001 380 1,230 410

2002 460 1,290 430

2003 450 1,380 460

2004 470 1,360 453

2005 440 1,410 470

2006 500


0

200

400

600

800

1000

1200

1400

1600

1 2 3 4 5 6

Moving total of 3 year sales

Moving average of 3 year sales


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3.3: PREPARE BUSINESS PRESENTATION USING SUITABLE SOFTWARE AND TECHNIQUES

TO DISSEMINATE INFORMATION EFFECTIVELY

In preparing a business presentation with suitable software and techniques requires the management to

consider the objective of the presentation. This is necessary because the objective will assist management plan

a specific and measureable presentation (BPP 2013). BPP (2013) argue that the presentation explains what the

audience will do, and how the audience will change at the end of the presentation.

Content of business presentation

There are several steps organization has to consider in preparing a business presentation. BPP (2013) suggest

five steps, which include brainstorming, prioritizing, structure outline, practice, and developing cue and visual

aid.

Brainstorming: Management has to think deeply about the subject, and write down the points.

Prioritizing: Select the key points and direct attention to the key points

Structure outline: Ensure to make notes that show the selected main points and how the point link together.

BPP (2013) argue that the outline include introduction, supporting evidence, examples and illustrations, notes

of when and what visual aids are required.

Prioritize the areas of importance and accept the key points and discard the unwanted ideas.

PowerPoint presentation

A PowerPoint presentation is a selection of slides, handout speaker’s notes and the outline

Slides: These are the pages of the presentation and may contain text, images, graphs and sounds (BPP, 2013)

Handouts: These are smaller version of the slides with 2, 3, or 6 slides on an A4 page

Speakers note: The presenter can present these notes alongside the presentation

Outline: This shows the title and main text of the whole presentation and not images.

Slides business presentation

In preparing slides for business presentation using PowerPoint software start with the a title slide

The presenter has to identify himself and the aim of the presentation

Plan for uniformity: This include the following


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A: Use the same background for all the slide (same color, same design)

B: Consider using one of the software templates in order to help organize the information

Prepare the slides: Choose words carefully and aim for the following

A: no more than seven word per line

B: no more than seven total lines

No more than 7*7 = 49 words per slide

Use visual elements when appropriate (charts, graphs, pictures, clip art and lists)

I: use only one dominant visual per slide

Ii: keep it simple

Be sure to document borrowed images (use footnotes if appropriate, get written permission for public

presentation)

Proofread carefully

I: use a spell checker

Ii: double check proper name spellings

Iii: use punctuation correctly

Iv: Make sure list are parallel

Guide for the preparation of business presentation for a new business

Once a business plan has been completed, the next step is to prepare the presentation in order to attract

potential investors and lenders.

A good business plan presentation may work as a strong method in drawing target audience

Ensure that the presentation is not more than twenty five minutes long

Analyze the audience

I: Find out who the audiences are and what they want to know about the company

Ii: The presentation is to attract the audience in order for them to grant a loan or invest in the business


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Iii: Ensure that the presentation is in accordance with the requirements of the audience

Iv: Get sense of what impress the audience

Get Organized

I: Draw up an outline of the important points that may impress the investors

Ii: Organize the presentation materials in the same order as it is done in the business plan

Use of visual aid

I: It is a very good idea to add visual aid to the presentation

Ii: Visual will assist to get the attention of the audience and provide a good account of the business

Iii: It will add creativity to the presentation

Keep it simple and succinct

I: Show everything that may attract the audience, it must be in easy language

Review the presentation

I: Review the presentation several times. Cut out lengthy sentences and make sure that the sentences have

flow and continuity

Ii: Use bullet points and avoid adding more than five or six points in one slide

Practice

The presenter or the company should practice; this is because a good business presentation is borne out

continuous practice

EXAMPLE PRESENTATION TO POTENTIAL CLIENTS OF BARCLAYS STOCKERS


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Slide 1 - Do You Save? Do You Invest?

Lesson Reference: Money Management, Activity 1 – Overhead 1

DO YOU SAVE?

DO YOU INVEST?

1

Slide 2 - Saving vs. InvestingLesson Reference: Money Management, Activity 1 – Overhead 2

SAVING VS. INVESTING

Saving• Short-term.• Postpones spending.• Has safety precautions.

Investing• Long-term.• Exchanges money for something with the future

expectation of receiving a profit.• Has risk factors.

2


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TAKE A GOOD LOOK AT A PAYCHEQUE

Slide 3 – Paycheque

Lesson Reference: Money Management, Activity 1 – Handout 13

Slide 1 - Savings vs. Investing


SAVING vs. INVESTING

SAVING • Short-term.• Postpones spending.• Has safety precautions.

INVESTING • Long-term.• Exchanges money for something with the future

expectation of receiving a profit.• Has risk factors.

6


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Slide 2 - Saving vs. Investing, Historically


SAVING VS. INVESTING, HISTORICALLY

7

Slide 3 - Places to InvestLesson Reference: Money Management, Activity 4 – Overhead 3

PLACES TO INVEST

• Stocks

• Bonds

• Mutual Funds

• Retirement Plans/RRSPs

• Real Estate

• Collectibles/Valuables

8


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3.4: PRODUCE A FORMAL BUSINESS REPORT

A formal report is a report designed for a specific audience. For this task, learners are required to produce a

report suitable for business audience. The author argue that reason of the report is to answer questions that

are being asked by either the manager, director of the organization or by any other intended audience (BPP,

2013). There are two types of business report that may serve the purpose of the company and intended

audience. This includes analytical report and practical/scientific report (BPP, 2013).

Analytical report examines events, organization situation, issues and processes. BPP (2013) suggest that the

reason for analytical report is to provide the audience with reliable information that may be used to make

decision as well as take further action.

The practical/scientific report provides an account of what as happened in a test situation, or practical session

(BPP, 2013).

Style and Tone of formal report

Formal report command different style of writing, the writing style has to be professional and formal language

should be used. The reason for the report must be clear to both the writer and the person requesting the

report. However, it is the obligation on the person writing the report to clearly communicate information in an

unbiased way 9BPP, 2013).

Element of Formal Report

Title Element of Formal Report

Subject of Report

Terms of reference Clarify what has been requested

Introduction Who the report is from and to how the information

was obtained

Main body Divided into sections with sub heading to aid reader

logical order

Conclusions Summaries finding


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Recommendations Based on information and evidence, may be

combined with conclusions

Signature Of writer

Executive summary Saves time for managers receiving a long report

No more than one page.

Source: BPP (2013). Adapted by Author (2013)

Report on Proposed Updating of Company Policy Manual

To: Board of Directors BCD Ltd

From: Shane McFadden Computer World Ltd

Status: Confidential

Date: 16th

August, 2013.

Introduction and Term of reference

The present report sets to examine results of an investigation commissioned by the Board on 5th

July 2013. We

were asked to consider the present applicability of the company’s policy manual and to prepare changes

needed to bring it into line with current practice.

Method

The following investigatory procedures were adopted

A: Interview of all senior staff regarding use of policy manual in their departments

B: Observation of working practice in each department

Findings

The manual was last updated ten years ago. From our observation, the following amendments are now

needed.


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A: The policy section on computer use should be amended. It deals with safe storage of disks which is no longer

applicable as data is now stored on a server. Also it does not set out the company email policy.

B: The Company’s equal opportunities policy needs to be included

C: The coding list in the manual is now very out of date. A number of new cost centers and profit centers have

been set up in the last ten years and the codes for these are not noted in the manual.

D: There is no mention of the provision of the Data Protection Act as they relate to the company

Conclusion

We discovered upon interviewing staff that very little use is made of the policy manual. When it has been

amended as above, it can be brought back to use, and we recommend that this should be done as soon as

possible.

Signed: S. McFadden Computer World Ltd


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4.1: USE APPROPRIATE INFORMATION PROCESSING TOOLS

INFORMATION PROCESSING TOOLS

Organisation can use a variety of tools to process information. For example:

Area Tools

Project Management networking and critical path analysis, , Gantt

Chart, Programme Evaluation and Review

Technique (PERT) charts

Investment Appraisal (Finance) Net present value (NPV); discounted cash flow;

internal rates of return (IRR)

Stock/Inventory Management Tools Valuation: LIFO, FIFO, AVCO

Minimum and maximum stock level

Statistics Calculation of average: mean, mode, median

Dispersion: standard deviation, variance

Marketing SWOT, PEST, Porter Five Forces Model

Organisation Behaviour Motivational tools: Maslow, Mcgregor, Theory X

&Y

Economics Supply & Demand, Inflation and Interest Rate,

Cost of Capital


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EXAMPLE EXPLANATION -INVENTORY/STOCK MANAGEMENT

I: Ordering, receiving and issuing materials from stock

In costing, items of materials may be regarded as either direct materials or indirect materials. Direct materials

are the materials which the product is produced. While indirect materials are consumable stores used in

production

Ii: Procedure for documentation for purchasing materials

A: Purchase requisition: This is a formal request for material to be purchased because the stock level of the

materials as gone down. The purchase requisition either prepared by the store staff or produced automatically.

This document is often authorized by either the store manager (BPP, 2010)

B: Purchase order: When authorized purchase requisition is processed, the purchase order is placed with

suitable suppliers that can meet the requisition of the organization (BPP, 2010). The buyer select suppliers

based on the price, delivery promise, quality and past history of dealing with the supplier.

C: Goods received note: When the supplier delivered the goods, goods received note accompany the delivery

indicating what goods have been delivered. According to BPP (2010), the receiving department will do the

following upon receipt of the goods receive not

I: Check what goods have been delivered in terms of quantity, quality,, the supplier and the purchase order

number

Ii: Check the delivery not to ascertain that it agrees with the physical goods in terms of quantity and description

Iii: Check the purchase order copy to see that the goods that have been delivered are as ordered

Iv: Prepare a good received note

Iii: Purchase invoice

This document is received from the supplier. The purchasing department attaches the good received not and

purchase order with the supplier invoice and sent to account department to arrange payment.

Iv: Valuation of closing stock and material issue

BPP (2010) suggest that if materials are purchased exactly as required for production the cost of a particular

stock could be attributed to a specific production cost. Most often, materials are purchased in large quantities

at different prices and issued to production in small quantity. In order to establish cost of production, the cost


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accountant has to identify material cost for each issue of stock from production department. According to BPP

(2010), the methods to use to put a value to materials issued from stores are FIFO, LIFO and Weighted Average

Cost.

FIFO: This represents first in first out. With FIFO materials issued from stores are valued on the assumption that

the earliest units of the stock item received into stores are the first to be issued.

LIFO: This represents last in first out. With LIFO materials issued from stores are valued on the assumption that

the latest units of stock items received into stores are the first to be used.

Weighted Average Cost: With weighted average cost, all items in stock are valued at a weighted average price,

and issues from stores are valued at that price. A new weighted average price is calculated whenever there is a

new issue of the stock item into store.

Illustration:

In November, 1000 tonnes of stock item 1234 were purchased in three lots

3 November 400 tonne at £60 per tonne 11 November 300 tonne at £70 per tonne 21 November 300 tonne at £80 per tonne During the same period four materials requisition were completed for 200 tonnes each on 5, 14, 22, and 27

November.

First in first out (FIFO) Receipt/Issue Item 1234

Date Quantity Price £

Value £

£ 60 £70 £ 80

3 Nov 400 60 24000 400

5 (200) 60 (12000) (200)

11 300 70 21000 300

14 (200) 60 (12000) (200)

21 300 80 24000 300

22 (200) 70 (14000) (200)

27 (200) 70 (15000) (100) (100)

30 Nov (bal) 200 80 16000

Source: BPP (2010) Adapted by Author (2013) Last in first out Receipt/ Issue Item 1234


Value £

£ 60 £70 £ 80

3 Nov 400 60 24000 400

5 (200) 60 (12000) (200)

11 300 70 21000 300

14 (200) 70 (14000) (200)

21 300 80 24000 300

22 (200) 80 (16000) (200)


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27 (200) 70 (15000) (100) (100)

30 Nov (bal) 200 80 12000 200

Source: BPP (2010) Adapted by Author (2013) Weighted Average Cost Receipt/ Issue Weighted Average Price


Value £

Issue Price £

3 Nov 400 60 24000 60

5 (200) (12000) 60

200 12000 60

11 300 70 21000

Balance 500 33000 66

14 (200) (13200) 66

300 19800 66

21 300 80 24000

Balance 600 43800 73

22 (200) (14600) 73

27 (200) (14600) 73

30 Nov (bal) 200 14600 73

BPP (2010) Adapted by Author (2013) Reasons for holding stock and the associated costs Organization decides to hold back Stocks in order to increase sales and profit. According to BPP (2010), when

organization decides to hold back stock several products may be offered, customers demand may be satisfied

and production is not delayed waiting for new delivery of materials. Moreover, holding stock may be

expensive; the objective of stock policy should be to minimize the total annual cost associated with stock.

Holding stock: Holding cost include interest on capital, the cost of storage space and equipment, administration

cost and losses from depreciation, and stealing. Holding cost can be reduced by keeping stock levels to a

minimum.

Ordering cost: This cost is incurred every time stock is purchased from supplier. Order cost include the buyer

time contacting the supplier, and the storekeeper’s time spent in checking the goods received. Order cost can

be reduced by placing orders only at infrequent time.

Economic order quantity: This is the order quantity for a stock item that will minimize the combined cost of

stock ordering plus stock holding over a given period of time. The economic order quantity is calculated on the

basis of the following

There should be no stock out of item

There is no buffer stock

A new delivery of stock is received from supplier at the exact time

The delivery lead time from supplier is predictable.

Given the assumption, the EOQ is constructed as

Let Co be the cost of placing order


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Ch the annual cost of holding stock

D the annual demand for the stock

Q the order quantity

Cost holding stock Q/2 = Ch

Ordering cost D/Q = Co

EOQ 2*Co*D

Ch

Illustration:

Eddy Enterprise is a retailer of beer barrels. The company has an annual demand of 36750 barrels. The barrels

cost £12 each. Fresh suppliers can be obtained immediately, but ordering costs and the cost of carriage inwards

are £200 per order. The annual cost of holding one barrels in stock is estimated to ne £1, 20

EOQ = 2*Co* D Ch EOQ = 2 * 200 * 36750 1,20 EOQ = 14700000 1.20 EOQ = 12250000 EOQ = 3500 Barrels Total annual cost = Holding cost + Ordering cost Total annual cost = Q/2 * Ch + D/Q * Co Total annual cost = 3500/2 * 1,20 + 36750/3500 * 200 Total annual cost = 2100 + 2100 Total annual cost = 4200 Minimum stock level

When stock falls to its minimum level, management should check that a new delivery of the item will be

received from the supplier before stock out occurs. The minimum stock is calculated as

Re-order level – Average demand for the item during the lead time


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Maximum stock level

The maximum stock is the level that organization should ensure not to exceed. When stock level exceed the

maximum level, then something as gone wrong and the management should be informed. The calculation of

maximum stock level

Re-order level + Re-order quantity – (Minimum usage per day * Minimum lead time per order)

Re-order level

The re-order level is the level of stock holding at which a fresh order is placed with a supplier. When the

demand for an item is uncertain because it varies from day to day and the when the supplier lead time is

variable, the re-order level that avoids any risk of a stock out during the lead time is

Re-order level = Maximum supply lead time (in days or weeks) * Maximum daily or weekly demand for the

item.

Illustration

Find the Re-order level, minimum stock level and maximum stock level from the following

Minimum lead time 4 days

Average lead time 5 days

Maximum lead time 7 days

Maximum usage 500 units per day

Minimum usage 300 units per day

Re-order quantity 5400 units

Source: BPP (2010) Adapted by author (2013)

Re-order level

Re-order level = Maximum usage * maximum lead time

Re-order level = 500 * 7

Re-order level = 3500

Minimum stock level

Re-order level – (Average demand * Average lead time)

3500 - (500+300)/2 * 5

3500 - (800/2 * 5)

3500 - (400 * 5)

3500 - 2000

1500

Maximum stock level

Re-order level + Re-order quantity – (minimum usage * minimum lead time)

3500 + 5400 - (300 * 4)

8900 - 1200 = 7,700


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4.2: PREPARE A PROJECT PLAN FOR AN ACTIVITY AND DETERMINE THE CRITICAL PATH

A project is an undertaking that as a beginning and an expected end that is carried out to meet organizational

goals or individual goals (BPP, 2013) within cost, schedule as well as quality objective. BPP (2013) argue that

the characteristics of a project include specific start time and expected end, a defied objectives, it contain cost,

and schedule to produce goods. In addition, the objectives of a project encompass quality, budget and

timescale

Features of project management

A project management is designed to an expected end as such it contain certain features

Team building: Project is executed by a group of people that has to communicate among themselves to achieve

the organizational objectives.

Expected problem in managing the project has to be resolve before the commencement of the project

If the project attracts different people with different interest it will cause problem

Planning the Project

Analyze the project: At this point, the project is broken down into different activities and how the parts are

able to relate to each other (BPP, 2013).

Estimate the time and cost of each activity: The amount of time each activity will take in the completion of the

project is estimated in line with associated cost

Draw a network: The sequence of the activities is drawn in a diagrammatic form called the network diagram

Locate the critical path: The critical path is a chain of events that determines how long the several project will

take. Any delay in the critical path of the project will surely cause an overall delay in the completion of the

project at the expected time (ACCA, 2004; BPP, 2013).

Schedule the project: Determine the chain of events that leads to the most effective cost schedule.

Monitor and control: There should be careful attention to the schedule and consider any other progress chart

that has been drawn in order to monitor actual progress in line of planned achievement.

Revise the plan: The plan may need to be amended in order to take account of problems that happens during

the progress of the project.


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Tools in project management

Work breakdown structure: This involves the breakdown of the project into very smaller units and determines

the resources required to complete the project (BPP, 2013).

Network analysis: This is a tool for planning and controlling a large project that include construction work,

research and development project or the computerization of a business systems (BPP, 2013). Further, BPP

argues that network analysis assist managers to plan when to start various tasks, to allocate resources so that

the task can be executed within an expected timescale and to monitor actual progress as well as to examine

when control action is needed to prevent a delay in completion of the project.

The critical path, event times, and floats: The critical path is the path through the network with the greatest

total duration (BPP, 2013).

Gantt chart: This is horizontal bar chart used to plan the time scale for a project as well as to estimate the

resources available to use

Resource histogram: This is a project data where resources requirements, usage and availability and shown in a

histogram. BPP (2013) posit that this is only a simple bar that explains the number and mix of employees over

the duration of the project. Moreover, this histogram is implored to control and manage the human resources

requirement of the project.

Critical Path Analysis: This is sometimes called Network Analysis. It is a tool used to plan activities so that a job

can be completed in the shortest time. The critical path analysis breaks a job into a number of tasks and looks

at the dependency of them (BPP, 2013). This is usually explored in the manufacturing and construction

companies,

According to BPP (2013), the network consists of two elements such as activity and the node. The activity

requires time and or resources, they are drawn as arrows from left to right and the length of the arrow is not

important. Further, the author argued that the node represents the start and the end of an activity, the node is

represented by circles and every network must start and end with a node.

The activity symbol is

The node symbol is represented as

A simple network diagram

A business wishes to build a new factory and before it can do so it needs to

The node


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I: Buy the land (Activity A – will take 12 weeks)

Ii: Draw up plans (Activity B – will take 3 weeks)

A simple network may be drawn to illustrate this scenario

A B

12 13

Using the same illustration, if the firm wants to apply for planning permission activity AA take 14 weeks

A

12

B

AA 3

14

There are a number of problems with the example

I: there is no way of identifying the nodes

Ii: It does not help in identifying the crucial activities

In order to achieve this, the nodes may be developed to show more information

the node number 1 at the

left side of the circle show

Order of activities,

The right side of the circle are used to hold additional information

1


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Note: The main reason for drawing a network is to identify the critical activities. To achieve this, the learner has

to calculate earliest time at which any given activity can start. Use the following formula to calculate it

EST = EST of previous activity + Duration of previous activity

Calculation of earliest start time: The information is placed in the top right hand quarter of the node. The first

node will always have an EST of zero

The earliest start time goes in the top right hand quarter of the node as zero as shown above. Using the

example previously, the EST for each activity would be calculated as follow

A B

+ 12 + 3 =

Finding the EST and simultaneous activities: When there are simultaneous activities there may be more than

one value for the EST

Illustration

A 12

+ 12 =

B

+ 3 =

AA

+ 14 = 14

1 0

1 0 2 12 3 15

1 0 2 3 17


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Since Activity B is dependent on both Activities A and AA, it cannot start until both are complete. Therefore the

highest figure must be taken. This means that the EST is 14 weeks

Identify the critical activities and the latest finishing time

Formula LFT = LFT at end of following activity – Duration of following activity

The LFT goes in bottom right hand quarter of node

The first node will always have an LFT of zero

00

Using the first illustration, the LFT for each activity would be calculated as

A B

= 12 - = 3 -

The earliest and the latest t me the project cam finish is 15 weeks. The EST and LFT of the last node are always

the same.

The float: The spare time is referred to as the float. Any activity without spare time is critical.

A free float is the amount of spare time available for an activity without delaying the next activity. The total

float is the amount of spare time available for an activity without delaying the whole project.

Free float formula EST at End of activity – EST at start + Duration of activity

Total float formula Activity’s LFT – Activity’s EST + Activity’s Duration

Calculating the float

The free and total float in the illustration above would be

A

12 B

AA 3

1 0

0

1 0

0

2 12

12

3 15

15

1 0

0

0

2 14

14

3 17

17


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14

Activity Duration

(Weeks)

EST LFT Free

Float

Total

Float

A 12 0 14 2 2

AA 14 0 14 0 0

B 3 14 17 0 0

Source: Business studies (2013)

In the table above, Activity A can be delayed 2 weeks without delaying Activity B.

Activity A can be delayed 2 weeks without delaying the whole project

Activity AA and B are critical because any delay will hold up the project

Identifying the critical path: The critical path identifies the activities that have no float and this critical path in

the diagram above indicates the LFT of node 1 to node 2 of LFT and node 2 to node 3 . the node on the critical

path should have equal EST and LFT

EXAMPLE- CRITICAL PATH METHOD


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EXAMPLE GANTT CHART


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4.3: USE FINANCIAL TOOL FOR DECISION MAKING

Investment Appraisal (Capital Investment)

Organizations spend huge amount of money for new fixed asset or repairing fixed asset. Expenditure on fixed

asset is capital expenditure. Capital expenditure may be necessary on maintenance, profitability, expansion and

indirect expenditure on fixed asset that do not have any direct impact on the organization operation or its

profit (ACCA, 2004; BPP, 2013).

Methods of capital investment

Organizations forecast for cost and benefits for any capital investment. According to BPP (2013) in recognition

for the forecast and benefit, the estimates have to be analysed in order to establish whether the capital

investment should be undertaken. As such, ACCA (2004) confirm that capital investment appraisal is an analysis

of the expected financial returns from a capital investment project over its expected useful life. Similarly,

several appraisal techniques are implored in appraising capital investment which include payback period,

accounting rate of return, net present value and the internal rate of return (ACCA, 2004 BPP, 2013).

Accounting rate of return (ARR) or return on capital employed (ROCE)

According to ACCA (2004), the return on capital employed also referred as accounting rate of return expresses

the profit from an investment as a percentage of capital cost.

ROCE = Average annual profit before interest and tax

Initial capital cost

Illustration

A project involves the immediate purchase of an item of plant costing £110000. It would generate annual cash

flows of £24400 for five years, starting in year 1. The plant purchased would have a scrap value of 10000 for

five years, when the project terminates. Depreciation is on straight line basis.

Calculate ROCE

Average annual depreciation = (110000 - 10000)/ 5

Average annual depreciation = 100000/5

Average annual depreciation = 20000

Average annual profit = 24400 - 20000


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= 4400

ROCE = Average annual profit * 100

Initial capital cost

ROCE = 4400 * 100 110000

ROCE = 0.04 * 100 = 4%

Advantages of return on capital employed (ROCE or ARR)

It is very simple to calculate

It is expressed in percentage terms

Disadvantages

It fails to take account of the expected life of the project as well as the timing of the cash flows and

time value for money

It might ignore working capital requirement

There is no definite investment signal, because the decision to invest and not remains subjective.

Payback technique of appraisal

The payback period explains the time the project will take to payback the initial capital investment. ACCA

(2004) and BPP (2013) argue that it is the time that an investment will take to pay back the money spent on a

project. It is based on expected cash flows from the project, not accounting profit.

Reasons for payback period

Two reasons are involved in payback period. BPP (2013) posit that when two alternative capital investment

projects are compared, management decision is to accept one of the project and not both. As such, preference

is given to the project that can pay back quickly (ACCA, 2004).

Management decision is to ensure that no project is undertaken unless a projected is expected to pay back in a

shorter time (BPP, 2013).

Calculating payback period

When the cash flows are constant in the expected life of the project, the formula approach is used.

Payback period = initial capital


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Constant annual cash flows

Illustration

An expenditure of £2 million is expected to generate cash flows of £500000 each year for the next seven years.

Find the payback period.

Years Cash flows

0 2,000,000

1 - 7 500,000

Source: Author, (2013)

PBP = 2,000,000 500,000 PBP = 4 years Decision: The project can pay back the initial capital investment in just 4 years

Uneven cash flows

When the cash flows are not constant, the tabular method is used

Illustration

A project has the following cash flows

Years Cash flows

O (1,900)

1 300

2 500

3 600

4 800

5 500



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Uneven payback is tabulated

Years Cash flows Cumulative

Cash flows

O (1,900) (1,900)

1 300 300

2 500 800

3 600 1,400

4 800

5 500


500 * 12

800 0.625 * 12 = 7.5 or 8 month

Decision: The project can pay back in just 3 years and 8 months

Advantages

It is simple and easily understood

If new plant it is likely to be scraped in a short period of time because of obsolescence

Disadvantage

Cash flows arising after the payback period are ignored

There is no objective measure as to what length of time should be set at the minimum payback period

Net present value (NPV)

The net present value is the value obtained by discounting all the cash flows and inflows for the project capital

at the cost of capital, and adding them up. BPP (2013) argue that when the present value is higher than the

cost of the project, it is referred to as net present value. The net present value is positive when the present

value is higher than the cost. It is negative when the present value is less than the cost of the project (ACCA,

2004; BPP, 2013).


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Illustration

Edward plc is considering a capital investment in new equipment. The estimated cash flows are as follows

Years Cash flows

0 (240,000)

1 80,000

2 120,000

3 70,000

4 40,000

5 20,000

Source: ACCA (2004) Adapted by Author (2013

The company cost of capital is 9%

Calculate the NPV of the project to assess whether it should be undertaken

Years Cash flows Discount factor 9% Present Value

0 (240,000) 1,00 (240,000)

1 80,000 0.917 73,360

2 120,000 0.842 101,040

3 70,000 0.772 54,040


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4 40,000 0.708 28,320

5 20,000 0.650 13,000

Source: ACCA (2004) Adapted by Author (2013)

Present value 269760

Cost of project 240,000

Net present value 29760

Decision: The project is worthwhile because the present value is higher than the cost of the project.

Internal rate of return (IRR)

As discussed before, the net present value NPV of discounted cash flow, the present values PV are calculated

by discounting cash flows of a given cost of capital and the difference between the present value and the cost

of project is the net present value (ACCA, 2004; BPP, 2013). The internal rate of return hereafter IRR is to

‘calculate the exact discounting cash flow (DCF) rate of return that the project is expected to achieve. This is

the cost of capital at which the NPV is zero. BPP argues that it is a trial and error process to get to zero NPV.

The expected rate of return IRR is higher than the target rate of return, and then the project is financially worth

undertaking. Since the trial and error process in determining the IRR is a long time and waste of space, the

formula approach is necessary.

IRR = LR + NPV+ (HR - LR) Combined NPVs

Where LR is lower rate

HR is higher rate

Combined NPVs is the positive and negative NPVs

NPV+ is the positive NPV

Illustration

A business undertakes high risk investment and requires a minimum expected rate of return of 17% on its

investment. A proposed capital investment has the following expected cash flows


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Years Cash flows

0 (50,000)

1 18,000

2 25,000

3 20,000

4 10,000


Find the NPV of the project if the cost of capital is 15%

Find the NPV of the project if the cost of capital is 20%

Use the NPV that is calculated to estimate the IRR of the project

Recommend, on financial ground alone, whether this project should go ahead

Years Cash flows Discount factor 15% Present value

0 (50,000) 1.00 (50,000)

1 18,000 0.870 15,660

2 25,000 0.756 18,900

3 20,000 0.658 13, 160

4 10,000 0.572 5,720



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Present value 53,440


Net present value 3,440

Years Cash flows Discount factor 20% Present value

0 (50,000) 1.00 (50,000)

1 18,000 0.833 14,994

2 25,000 0.694 17,350

3 20,000 0.579 11,580

4 10,000 0.482 4,820


Present value 48,714


Net present value (1,256)

Decision: On the NPV account the NPV with a cost of capital of 15% as a positive NPV so it is worth undertaken.

Internal rate of return

IRR = 15 + 3,440 (20 - 15) 3,440 + 1,256

IRR = 15 + 3,440 ( 5 ) 4,696

IRR = 15 + 0,732 * 5


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IRR = 15 + 3.66

IRR = 18.7%

Recommendation

The project is expected to earn a DCF return in excess of the target rate of 17%, so on financial ground it is a

worthwhile investment. The company can invest in the project

SUMMARY OF CRITERIA FOR SELECTING A VIABLE PROJECT

Summary measures of project performance, such as the NPV, IRR or AIRR, are used to indicate the overall

performance of a project under economic evaluation:

either an NPV or an IRR (or AIRR) is an essential result, to be included in the Project Appraisal

Report;

as a minimum, to be acceptable a project should have an NPV greater than zero or an IRR (or

AIRR) greater than the discount rate, which is conventionally 12% for Bank-funded transport

projects;

the NPV or IRR (or AIRR) measure should also be used to compare alternative solutions, for

example alternative routes for road and rail links, and different locations for ports and

interchanges of all types;

sometimes it can pay, in economic terms, to postpone the implementation of a project to a

later date, the NPV can be used to test whether the timing of investment is optimal.


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REFERENCES

Browne, M.N., & Keeley, S.M., (1998). Asking the right questions: A guide to critical thinking 5th

ed. Upper

Saddle River, N.J Prentice Hall

BPP, (2013) Business Decision Making, Business Essentials; Supporting Pearson BTEC Higher Nationals and

Foundation Degrees Published by BPP learning Media.

BPP, (2010) Business Decision Making, Business Essentials; Supporting Pearson BTEC Higher Nationals and

Foundation Degrees Published by BPP learning Media.

Isaac, S., & Michael, W.B., (1997) Handbook in research and evaluation: A collection of principles, methods, and

strategies useful in the planning, design, and evaluation of studies in education and the behavioural sciences.

3rd

ed. San Diego: Educational and Industrial Testing Services.

Glasow, P.A., (2005) Fundamentals of Survey Research Methodology, Mitre Product.

Kraemer, K.L., (1991). Introduction. Paper presented at the information Systems Research Challenge: Survey

Research Methods.

Kennerley, M., & Mason, S., (2008). The Use of Information in Decision Making: Literature Review for the Audit

Commission. Centre for Business Performance Cranfield School of Management.

McLntyre, L. J., (1999). The practical skeptic: Core concepts in sociology. Mountain View VA: Mayfield

Publishing.

Quinlan, C., (2010) Business Research Methods, Cengage learning. Publication UK.

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